Until now, US bank customers had signed away their right to sue their bank in court, often without being aware of it.
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The Consumer Financial Protection Bureau issued Thursday a proposed rule that would prohibit mandatory arbitration clauses that deny groups of consumers their day in court.
The CFPB has proposed a new rule that would prevent big companies from forcing their customers to accept mandatory arbitration in place of an actual trial in an actual court. Since it requires no congressional approval, the rule quite likely will go into effect after a 90-day public comment period in which opposition from business groups will no doubt be extensive, loud and bullshitty.
Banking industry groups point out that the CFPB study found that members of class-action suits don’t fare well, compared with consumers using arbitration. “The CFPB’s proposed rule will begin to reopen the courthouse doors to consumers who have been wronged by dishonest and abusive financial service practices”.
U.S. Senator Sherrod Brown, an Ohio Democrat sometimes mentioned as a possible vice presidential candidate in November’s election, pledged to push the CFPB to “finalize the rule as soon as possible”.
Increased transparency: The proposed rules would make the individual arbitration process more transparent by requiring companies that use arbitration clauses to submit any claims filed and awards issued in arbitration to the CFPB. The research showed that financial products frequently sold to “vulnerable populations”, including low-income families and students, had even higher rates: 92 percent of prepaid credit card agreements contained the clauses, and 86 percent of private student loan contracts required arbitration to settle disputes. Instead of taking years, the average consumer arbitration lasts just short of seven months. Yet tens of millions of Americans have signed financial contracts that include arbitration clauses. The CFPB has been studying the clauses as part of its mandate under the Dodd-Frank Act, which also bans the use of arbitration clauses in mortgage contracts.
In this case, David represents consumers who feel cheated by Goliath financial-service companies.
Here are some reasons the CFPB claims its rule will be good for consumers, per a press release.
All the major financial industry lobby groups announced their opposition to the CFPB proposal in prepared statements on Thursday.
The study found that class actions provide a more effective means for consumers to challenge problematic practices by these companies.
Stay on topic – This helps keep the thread focused on the discussion at hand. During panel testimony following the May 5 field hearing, Travis Norton of the U.S. Chamber of Commerce, for instance, pointed out that in some cases arbitration is beneficial for consumers because it is cheaper than litigation, is a more efficient means to resolve disputes, and that the costs are often borne by the institution and not the consumer. Arbitration clauses enable companies to avoid being held accountable for their conduct.
Class action lawsuits of course aren’t new. While the CFPB’s proposal would only affect financial agreements, it could have a broader impact on all sorts of contracts that feature arbitration provisions such as employment agreements, according to Mike Calhoun, president of the Center for Responsible Lending.
“Corporations get to pick the arbitration provider, they choose all of the rules of the process and there is virtually no right to appeal”, Duncan says.
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To most consumers, that sounds like an OK deal – arbitration in theory is a simple and fair way to deal with a billing dispute or some other disagreement.
